What is Federal Tax?

In Canada, individuals need to pay income tax to both the federal and provincial governments. The federal government collects both these taxes for all provinces, except Quebec which has its own taxation system. Canada follows a progressive tax system, which means higher the taxable income, higher the tax.

How much is Federal Tax?

The federal tax rate varies between 15-29% based on income. The rates for the year 2014 are as follows:

  • 15% on taxable income of up to $43,953
  • 22% on taxable income between $43,954-$87,907
  • 26% on taxable income between $87,908-$136,270
  • 29% on taxable income of $136,271 and above

For example, let's take your annual salary is $110,000. You will need to pay tax of 15% on the first $43,953 of your income. And on the remaining $66047, you will be taxed at 22% as this amount comes in the second slab.

Federal Income Tax Credits

There are several non-refundable credits available on federal income tax. These include a basic exemption for income below $11,038. This amount is called as the personal amount. Anyone earning up to $11,038 does not have to pay any federal tax. For income above $11,038, the personal amount is calculated as a percentage (the lowest tax slab) of this amount. So going by the above example, credit will be 15% (the lowest slab) of $11,138 or around $1,670. This amount will be deducted from total tax liability irrespective of your income.

Credit is also available on contributions made to CPP (Canada Pension Plan) and EI (Employment Insurance). Eligible dividends are also liable for some credit. Several other credits are available based on eligibility. For example, a credit of up to $1,117 is available on income from jobs or employment. Other categories include credits for taxpayers above the age of 65 (up to $6,854), for recipients of pension (up to $2,000), for students (up to $465), for people with disability ($7,697), and for people caring for infirm dependents (up to $6,530).

Some of these credits are also transferable. So, if you have some credit left after minimizing your tax liability or reducing it to zero, you can transfer it to another qualified taxpayer. Like unused disability credit can be transferred to a spouse. Or students can transfer their unused credit to parents.

How does Federal Tax affect your tax?

Usually, federal taxes constitute the largest portion of your tax liability. You can calculate the Federal Tax due on your income using the tax calculator.

Canadian Tax and Finance Guides